Why would I want to set up a trust?

It's a common belief that trusts are the exclusive preserve of the very wealthy who use them to avoid paying tax. While there may be more than a grain of truth in this statement, trusts are incredibly useful devices for all sorts of people. Simply put: a trust is a really flexible and effective way to make a gift.

Although changes to tax laws in recent years have made it somewhat less attractive for a person to create a trust during his lifetime, trusts continue to be a useful means of giving away assets on death.

A trust also enables a person to give assets to a class of people, some of whom may not yet be born. For instance, a grandmother could put assets in trust for the benefit of her "grandchildren" to ensure both her existing grandchildren and any born after the date of the gift are provided for.

A trust can also be used to separate an asset (e.g., a house) from the income it produces and give each to different people. For example, a trust could provide that one beneficiary be entitled to rental income from a house for a period of time, with another beneficiary getting the property itself at a later date.

A trust can also be used to create "life interests". One can give a beneficiary the right to occupy a particular property for life, and then have the property pass to someone else after the first beneficiary dies.

Finally, an adult may use a trust to put aside money for the benefit of young people who are not yet responsible enough to manage it. The terms of the trust could state that the beneficiaries receive interest on the money until the age of, say, 25. Thereafter, they would be able to take all the money out of the trust and do with it as they please.

Source:

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